$40 Oil soon-Sell My House?

Makes sense.

 

Appropriate story for the thread

Texas may dodge worst of the oil bust

 

So with oil trading back up at $50/barrel, are we ready to say the doom and gloom oil bust predictions were premature?

And before you shout "Dead cat bounce", I have one word (well, not technically a word) for you:

ISIS.

Regardless of supply issues, oil prices go up with tension in the middle east. And that's going to get worse before it gets better. Investors are already in buy mode knowing that $60 and 70 dollars a barrel are just around the corner. Look for $100 if/when either Syria or Iraq falls.

 

Inventories are extremely bloated and getting worse...we're really just starting to see the physical imbalance in the market so imho, this isn't over yet.

You do bring up an interesting point - ISIS and ME tensions. So I'll ask you this: with all the fighting in Iraq and all the area ISIS controls, how is it that the country has been able to ramp up production to all time highs? They're now producing almost 4mmb/d, compared to the roughly 3mmb/d they were producing at the beginning of '14. That's pretty big growth at a time of significant unrest. Also, how does a potential settlement in the Iran nuclear negotiations factor in to your thinking? Not saying it happens but if it does, that's a fair amount of oil that will likely hit the market. Also you have to remember oil prices collapsed in the face of ongoing middle east tensions...no? I mean ISIS didn't just get fired up yesterday. And not only did prices collapse in the face of ongoing middle east tensions but also in the face of a serious confrontation between the west and Russia.

There is at times a geopolitical risk premium built into oil prices that as you might expect, fluctuates. When there is a fair amount of spare capacity in the world, that risk premium decreases as disruptions can be accommodated by other producers. When things are tighter, that risk premium rises.

This latest bounce in price has little to do with the geopolitical environment or middle east tensions. Best I can tell, it is more of a reaction to the rapidly declining rig count, that along with upstream spending, has fallen much quicker and steeper than anyone anticipated. The thinking goes the quicker the rig count drops, the quicker we'll see a production response.

 

To be technically accurate WTI traded above the $50 mark for a few very brief moments following the Financial Times story about a possible emergency OPEC meeting.

 

I'm still waiting to hear from that msd guy who claimed there would be no layoffs or spending cuts...boy was he way off the mark

 

I think when it comes to ME issues, it becomes less of a supply and demand issue. It's about fear and speculation. I agree that the ISIS thing didn't just start, but it's starting to cut through the clutter, and it's becoming increasingly clear that it will get worse before it gets better. What *did* recently happen was the US announcing plans to assist in a spring offensive, meaning we're going to become more involved. That was less certain before.

I defer to your expertise in the oil industry, but I still feel there is beginning to be speculators coming in to try to take advantage of an upcoming price increase. I don't think the prices right now are sustainable for very long.

 

We'll see. So did you sell your house yet?

 

Thought this thread was worth reviving given the “dead cat bounce” has indeed played out. As I write this, WTI crude just dipped below $46/bbl… in the last couple of weeks, we’ve seen three Chapter 11 filings among small public companies and a flood of equity and debt issued primarily by E&P companies.

Fundamentals ALWAYS win out over the long term and there’s no disputing that there is a significant imbalance in the market right now. As I mentioned before, geo-political issues do have a much greater impact on price in a tight market where there’s not as much spare capacity. In other words, if there were some kind of disruption to supplies, there isn’t as much slack in the system to compensate for lost production. In that environment, ME unrest and other geo-political issues do play a greater role in price as the risk premium increases. But when there’s a lot of spare capacity available to absorb potential disruptions as is the case today, that risk premium decreases.

Your point about the U.S. getting more involved is appreciated but I look at it the other way – that is BAD for ISIS. And the fact that the Arab world is contributing even more to the effort to fight this crazy group of radicals is also very bad for ISIS. And once more, ISIS hasn’t really prevented Iraq from ramping up production significantly. Libya is having big problems right now but most have already factored in those disruptions and once more, the market isn’t really “missing” those barrels right now. For perspective, Libya produced ~1.6 MILLION b/d of crude at its peak in 2012. Today they’re producing around 200 THOUSAND b/d and this substantial disruption is due entirely to unrest and fighting on the ground. Yet the price of oil still collapsed in the face of what is a significant disruption in global supplies. How do you explain that?

Hope I don’t come off as sounding like a jerk but I’d like to understand WHY you feel current prices are not sustainable for very long? Oilfield service costs are already down 20% and they’re coming down even further, which IMPROVES your rate of return on wells drilled. Granted, your cash flow is still reduced meaning you can’t drill as many wells as you would in a higher priced environment but factoring in service cost reductions, producers can earn the same ROR on wells at call it $65-70/bbl as they did when oil was >$90/bbl. Also, there are several factors that will keep U.S. production higher than people expect…in other words, everyone is expecting domestic production to fall off a cliff later this year and into ’16 in response to the rapid drop in rig count but unfortunately it’s not so simple and production will likely surprise people to the upside. Several factors at play there that I won’t get into right now…

So Stu, did you sell your house?

 

Do you love where you live? If yes, then keep it. If no, then sell and buy something you love.

I don't know doodly squat about the awl bidness. But I do know a thing or two about residential real estate, particularly in the Houston region. Bottom line, this ain't California. Net to net, homebuyers rarely make significant money on their home. In fact, nationally, does anyone want to guess how much housing has appreciated, after inflation, over the last 40 years? Try 1%, particularly after you factor in holding costs. (The real estate taxes on my current home are a $1,000 a month.)

Your home is not an investment. It is where you live. And where you live and how you live makes a huge difference in your outlook on life. If you live in a dump, you will feel like a dump. If you are over extended, you will be over extended in life.

Dale

PS I wonder how many of you where here during the '80s? I was. I'm never gonna forget when oil fell below $10 during the first part of 1986. This was after everyone said the bottom was in 1983, and then 1985.

Frankly, I don't want to remember those days.

 

If you remember the 80's, you should also remember the 70's. Each time we have had this type of oil movements. The stock market has crashed a few months to a year latter.

Clinton (as in Bill), needed to bubble up the economy to get out of the 90's recession. Low interest rates, retie real estate to the stock market. Then they touted why rent when you can own. One of Clintons legacy claims is the highest rate of home ownership ever. They now want this little tidbit of Clintons legacy forgotten. Tying stocks to real estate, makes market correction more severe and can plunge the country into recession.

I also don't see real estate as an investment. If you like the house keep the house. If you get laid off and can no longer afford it, sell it. Or if rise in interest rates and it becomes unaffordable sell.

Hold if you can afford it. Catch the next cycle to sell.

 

Perhaps. In all sales, you try to create two perspectives. A compelling reason to buy. A compelling reason to buy now.

 

Good luck! I'd sell too if I could find a comparable place to rent; but I can't, so I don't.

Dale

PS I used to be in the homebuilding bidness in The Woodlands. Things are still hot here, but for different reasons.

PPS If I were a betting man, which I'm not, I'd bet that oil will hit $25 before it hits $65 again.

 

Yep, all true, all true. And what has the Fed been trying to do for years? Bring homebuilding back from the dead. Why? Simple, new home construction used to spin more dollars through the economy faster than anything else. Back in the day, for example, my company used to dump $1 million dollars a week into two zip codes. Everybody loved us.

But not matter how hard the Fed has pushed on that string, it hasn't worked. Bottom line is we are never going to see 2 million starts again, not matter how cheep interest rates get. It takes too long to explain why, but that horse is dead.

 

1. What part of town are you in?

2. Ask the Realtor@ for comps, not smoke. Better yet, make him or her give you a 120 day selling price, but don't tell them 'em your number first. Make 'em work for their money.

Dale

 

Here's How $20 Oil Could Become a Reality If Storage Runs Out - Bloomberg Business

 

I have friends who live there and I am currently finishing up building in Fairfield.

That area is pretty immune in the market.

The last three years running, over 90% of my sales in Fairfield have been from people who currently live in Fairfield, were renting there, had lived there before or had family there.

 

Dale,

Going to The Woodlands, especially the new construction areas, is an amazing look into Crazy Town. I still can not believe what is happening there. The future there will be interesting

Shawn

 

Shoot me an email.